On Friday 17th March, the greenback weakened after the release of inflation, retail sales, and consumer sentiment data in the U.S.
The latest inflation metrics, including CPI (MoM) and the PPI (MoM), showed that inflationary pressures are still prevalent. However, recent trends in the data suggest inflation is starting to slow down. Furthermore, Retail Sales (MoM), the primary gauge of consumer spending, revealed a decline from a forecasted 0.3% to 0.4%. Additionally, the Consumer Sentiment index fell for the first time in four months to 63.4, down from 67.0 the month prior.
As a result, the U.S Dollar saw a 0.55% drop, losing ground against other major currencies. Consequently, this decline could potentially lead to no change or lower expectations for future rate hikes, putting additional pressure on the Federal Reserve. All focus lands on the Federal Funds rate, set for release on Wednesday 22nd March at 10:00 PM GMT+4. The market expects the Fed to raise interest rates by 25 basis points.
On 15th March, the Eurozone markets witnessed a significant decline after the drop in Credit Suisse’s stock that was triggered as its largest investor, the Saudi National Bank (SNB), pulled back. This also pushed the EUR/USD pair towards a decline of 1.46%. However, on Thursday 16th March, the Swiss National Bank (SNB) loaned Credit Suisse approximately $54 billion (about $170 per person in the US), leaving investors uncertain about further reductions in interest rates. For this reason, there was a change in sentiment at the end of last week, sparking a rise in the EUR/USD pair of 0.83% to close at $1.07.
The USD/JPY pair witnessed a decline of 1.40% in its last session on Friday with a closing price of 131.77. During times of uncertainty in the market, the Japanese Yen strengthened in comparison to the U.S Dollar.
The GBP/USD pair also witnessed a volatile week but managed to end the week on a positive note with an average gain of 0.79%. The Bank of England (BOE) will be releasing its official rate on Thursday, March 23rd at 4:00 PM GMT+4. Markets anticipate interest rates to rise by 25bps, potentially giving a boost to the British Pound.
After a failed attempt by Credit Suisse to secure a loan of up to $5.4 million, concerns are rising for investors and bank clients. As a result, Swiss authorities insisted that UBS take over the struggling bank. Over the weekend, UBS group agreed to Credit Suisse for around $3.2 billion, to avoid additional chaos in the banking sector.
US Equity Market
US stocks ended the week mixed, reflecting the crosscurrents of banking sector stress, concerns about a steeper economic slowdown, and hopes that the Fed would now be forced to pause its rate-hiking cycle.
As the week ended, the expected earnings decline for the S&P500 for Q1 2023 remained at 6.1% compared to a previous estimate of 0.3% decline with all sectors recording a decline in expected earnings revisions except the Utility sector recording an expected increase in earnings with NRG Energy (NRG), PG&E Corp (PCG) and Duke Energy (DUK) being the largest contributors to the increase in the EPS expectations.
The Materials sector has recorded the highest percentage decrease in expected earnings of all sectors since the beginning of the quarter at -13.9% followed by Materials, consumer discretionary, industrials, and Health Care sectors with WestRock Co. (WRK), Dow Inc. (DOW), and Mosaic Co. (MOS) being the largest contributors to the decline in estimated earnings for this sector.
The Futures markets were pricing in zero likelihood of a 50-basis-point hike by the Fed in March compared with a 40% chance of one the week before. Last week Dow Jones index lost 0.1%, SP500 gained 1.4% and Nasdaq gained 4.4%
Banks confidence is the star on stage last week as traders and investors are shifting from bank bonds to government bonds seeking lower risks, sending a message that the looming sentiment of uncertainty and risk has elevated . Adding to the market volatility, last week the ECB announced 3.5% financing and 3% deposit rate hikes. This week as well, traders will be awaiting the central bank’s decision regarding the tightening policy which affects demand negatively and so does it on oil.
WTI closed last week -13.55% at $66.22 and Brent -12.30% lower at $72.52. Both closed near their Q4 2021 levels. Weekly resistance level is $77.42 for WTI and $83.42 for Brent.
Gold rose for the third week in a row, regaining its attractiveness as a safe haven after achieving the second-best weekly closing in its history, as it rose last week from $1867 an ounce to close at $1989 an ounce, a 6.5% increase to get closer to the psychological and technical level of $2000 per ounce. Fears of a banking crisis in the United States and the global banking sector led investors to buy gold, which is regarded as a safe haven during economic and political economic crises.
From a technical point of view (Figure 1), gold succeeded last week in breaching the important resistance area at $1960 an ounce, and the most important thing we will focus on now is monitoring whether gold succeeds in breaching the psychological and technical resistance area at $2000 an ounce, which if it succeeds and exceeds it, it makes the analyst expect a positivity for prices during the coming period.
Figure 1: XAUUSD, Long term, Metatrader5, CFI Brokerage
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